We recently published a list of Top 10 Stocks to Watch as AI Trade Dynamics Change. In this article, we are going to take a look at where Meta Platforms (NASDAQ:META) stands against other top stocks to watch as AI trade dynamics change.
Aswath Damodaran from NYU Stern School of Business said in a recent program on CNBC that AI “buzzwords” are not boosting the market anymore as investors grow more concerned about capital spending.
“I’ve said about data centers we’ve gotten way ahead of the game. I mean, the AI product and service business, which ultimately is what has to pay for all of this, has not taken off in any substantial way. I’m hard-pressed to think about any company making significant money from the AI product and service business.”
Damodaran said that the “sobering” of the AI trade started in September last year and the DeepSeek breakthrough in China also had an impact on the industry.
“It’s part of, I think, what you see almost every buzzword in history in the last four decades. I call these the ‘bar mitzvah moment,’ where people wake up and say, ‘Okay, there’s a lot of promise here, but show me something that I can hang my hat on.’”
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For this article, we picked 10 stocks Wall Street analysts have been talking about lately. With each stock, we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
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Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 235
John Belton from Gabelli Funds said in a latest interview with Schwab Network that competition from TikTok has “come and gone” for Meta Platforms Inc (NASDAQ:META).
“TikTok is the more direct competition for Meta. I think there’s a little bit more overlap between their users and the type of time that TikTok is competing for. It’s really more overlap with Meta. A couple of years ago, Meta came under a lot of pressure when TikTok usage was really rising. I think what Meta and Google, for that matter, have been able to do over the last couple of years is start to play a little more of TikTok’s game, specifically on Google with YouTube. They’ve used AI to drive better content recommendations and improve user engagement, which is something TikTok was so successful at years ago. I think Meta and Google have really caught up to TikTok over the last two years on that front. Looking forward, I think the peak competition from TikTok has already come and gone.”
In 2025, Meta sees total operating expenses in a range of $114-$119 billion, with 19-25% y/y growth. Capex is expected to rise 61-74% y/y to $60-$65 billion, compared to just $37.3 billion in FY24. Advertising rose strongly but analysts believe it should be seen in the context of higher political ad spend and holiday quarter perspective. In 2025, the company might not be able to keep reporting double-digit growth in ad pricing amid weaker consumer spending and a cautious macroeconomic backdrop.
In the long term, Meta shares are expected to grow because of AI. How?
Meta Platforms (NASDAQ:META) is driving usage and ads revenue by improving its algorithms and user experience thanks to AI. Meta Platforms (NASDAQ:META)’s advancements in Reels and WhatsApp are helping manage CapEx growth as the company strives to stay competitive in AI. Meta Platforms (NASDAQ:META)’s substantial user base of 3.3 billion provides a data and distribution edge that could capture a significant share of the GenAI market.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q4 2024 investor letter:
“Meta Platforms, Inc. (NASDAQ:META): Investment Initiated: April 2018: Internal Rate of Return (IRR*): 22% *IRR represents the annualized rate of return on an investment, accounting for the timing and magnitude of cash flows over the holding period.
For META, our 22% IRR aligns closely with the company’s compounded growth in earnings per share (EPS) and free cash flow per share during the 6 years holding period.
Looking ahead, Meta is expected to grow its revenues, earnings, and free cash flow per share at mid-teens rates over the next two years. There’s a good possibility that it could exceed these estimates, considering the breadth of growth initiatives currently in place, such as advancements in Al, monetization of Reels, expansion into business messaging, and the ongoing development of the metaverse…” (Click here to read the full text)
Overall, META ranks 2nd on our list of top stocks to watch as AI trade dynamics change. While we acknowledge the potential of META, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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